EU Says Europe Faces Deep Recession

(New York Times – Matthew Saltmarsh)

The European Commission on Monday revised lower its forecast for growth in the European Union this year as consumers react to the weakening labor market and amid a slump in world trade and an ongoing housing market correction.

The commission, the executive arm of the E.U., forecast in its spring quarterly economic forecasts that gross domestic product in both the European Union and the euro area would contract by 4% this year and then by 0.1% next year. In its last report, the executive forecast an EU contraction this year of 1.8% and positive growth next year of 0.5%.

“The downswing is affecting not only all member states but also almost all demand components,” the report said, adding private investment in particular is suffering, reflecting depressed expectations of future demand as consumers react to the deterioration in the employment market.

Exports have contracted sharply as world trade flows dwindle.

The E.U. has not yet released its initial estimates of first quarter growth, but the report said survey and other data suggest a “further deterioration” for the period.

The more upbeat outlook for 2010 was based on the effect of tax and interest rate cuts and as financial markets starts to stabilize.

“The European economy is in the midst of its deepest and most widespread recession in the post-war era,” said Joaquín Almunia, the commissioner for economic affairs “But the ambitious measures taken by governments and central banks in these exceptional circumstances are expected to put a floor under the fall in economic activity this year and enable a recovery next year.” Read more here.